Chapter E: Enhancing social and market outcomes

E3. Road transport taxes

Key points

Current road tax arrangements will not meet Australia's future transport challenges. Poorly functioning road networks harm the amenity, sustainability, liveability and productivity of society. Moving from indiscriminate taxes to efficient prices would allow Australia to leverage the value of its existing transport infrastructure. Less congested roads, shorter travel times and investment in road infrastructure that addresses user demand would provide a foundation for further productivity growth, improved living standards and more sustainable cities.

In major cities, location-specific congestion charges would vary according to the time of day. City roads would be less congested during peak periods, with higher travel speeds and shorter travel times saving time for road users, reducing vehicle costs and reducing greenhouse emissions. The revenue from congestion charges on existing roads should flow back to the community, initially to finance public transport in affected areas.

Heavy vehicle charging would ensure that individual trucking operators pay their own specific costs and no longer cross-subsidise other operators. Truck operators would have incentives to avoid route choices and vehicle configurations that cause the highest costs, but would have access to roads and bridges where and when they are willing to pay. Revenue from road-wear charges would directly fund road maintenance.

Negative spillovers not currently amenable to pricing would be addressed through regulations. The transport sector would pay for greenhouse emissions through an economy-wide scheme, not through ad hoc sector-specific taxes.

In exchange for targeted charges, road users would pay less tax, including less fuel tax. Motor vehicle stamp duties would be abolished, compulsory third party insurance would be fairly priced, and taxi licence quantity restrictions that push up taxi fares would be removed.

The revenue from efficient charges could help finance new urban transport infrastructure, and cover the cost of heavy vehicle damage. But these charges would not pay for the full cost of providing and operating the road network. The remaining costs could be funded from general tax revenue, or by retaining a network access charge (such as annual vehicle registration) or a variable charge (such as fuel tax) set to recover the efficient costs of road provision. Important non-economic community objectives would still be funded from general revenue through well-defined community service obligations.

Spending on roads should match anticipated need. This should be determined strategically according to comprehensive and transparent benefit-cost analysis. This would help ensure new roads are built where needed, and roads are maintained to minimise total life-cycle costs, including costs to road users. Road users with specific needs could enter commercial agreements with road suppliers.

Existing institutions have not led to the most efficient use and supply of roads. Prices are essential to making the best use of roads, but they must be coupled with improved governance that better serves the needs of road users, now and in the future. New investment based on economic criteria, and accountability for investment decisions would help ensure that roads are in place to address future needs.

The challenge is formidable. It requires coordination across all levels of government. But reform would promote the best investment in and use of our roads, lift national productivity, and improve the lives of millions of Australians.